The share price of Reckitt Benckiser has fallen to its lowest level in 10 years after a US Court ruled that a rival Abbott Laboratories’ formula caused a girl to develop serious bowel problems.
The shares of the British Consumer Goods Group, who is also facing legal action for its Enfamil product, fell by around 9% on Monday to about £40.75 per share after Abbott was ordered by a Missouri court to pay $495m in damages (£385m).
A St Louis jury found that Abbott’s special formula for premature infants caused an Illinois baby to develop necrotising enterocolitis, a dangerous condition of the bowel. Abbott plans to appeal.
This is the latest judgment against Abbott and Reckitt for alleged health problems caused by their formulas intended for premature babies.
Reckitt’s other major brands, Durex Nurofen and Durex were ordered to pay $60m to a woman who claimed Enfamil produced by Mead Johnson under the Reckitt brand had caused her baby to die.
Investors are eager to learn if Reckitt will face further payments.
Jefferies analysts said that the Abbott ruling would likely “depress sentiment” towards Abbott and Reckitt. They have already estimated a discount of £3bn on Reckitt’s legal liability.
The statement said: “We think that this risk could be increased by a week, with [Reckitt]’s own new trial on 30 September due to begin and the multi-district litigation gaining momentum.”
According to Reuters there have now been 1,000 cases filed in US federal and state courts against either or both of the companies.
In the lawsuits, it is claimed that the companies failed to warn doctors about a higher risk of deadly disease for infants who receive formula than those breastfed or fed donor milk or formula derived from human milk. Abbott and Reckitt deny the claims and claim that there is no proof their products are responsible for NEC.
An Abbott spokesperson responded to the Friday’s verdict: “Verdicts such as these, in which the opinions and science of healthcare professionals, who spend their entire lives treating these infants, are ignored, makes it difficult for us to continue to supply these products indefinitely.”
Analysts at JP Morgan stated that the $495m damage figure was higher than expected. They had been expecting a payment of between $60m and 100m.
The brokerage stated: “With the final settlement still a long way off, we wouldn’t surprise if the verdict weighed on sentiments until there is a clearer resolution for the matter.”
Reckitt shares closed Monday at £40.75, their lowest price since January 2013.
Reckitt stated: “We are committed to the safety and effectiveness of our preterm nutritional products. Neoatologists will recommend them when clinically appropriate, as part of standard care in neonatal intensive-care units (NICUs).
The claims of plaintiffs’ attorneys that these products are responsible for NEC are not supported either by science or medical consensus, and are irresponsible.
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